Federal Court of Australia

Senatore (liquidator), in the matter the MCF Group Pty Ltd (in liquidation) [2024] FCA 1131

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 588FF(3)(b) of the Corporations Act 2001 (Cth), the time for the making of an application under s 588FF(1) of the Act in respect of or in relation to the liquidation of the second plaintiff, The MCF Group Pty Ltd (in liquidation) (Company), be extended to the date that is 12 months from the date of these Orders.

2.    To the extent necessary, pursuant to s 477(2B) of the Act, approval be granted nunc pro tunc for the first plaintiff, Ezio Senatore in his capacity as the liquidator of the Company (Liquidator), to enter into and perform his (and the Company’s) obligations under retainers with his solicitors, Pinsent Masons, in the form provided to the Court.

3.    Pursuant to s 477(2B) of the Act, approval be granted for the Liquidator to enter into and perform his (and the Company’s) obligations under a funding agreement in the form provided to the Court.

4.    The plaintiffs’ costs of the proceeding be costs in the liquidation of the Company.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MARKOVIC J:

1    By amended originating process filed on 14 March 2024 (Amended OP) Ezio Senatore in his capacity as the liquidator of The MCF Group Pty Limited (in liquidation) (Liquidator) and MCF Group as first and second plaintiffs respectively seek orders: first, under s 588FF(3)(b) of the Corporations Act 2001 (Cth) that the time in which to make an application under s 588FF(1) of the Act in respect of or in relation to the liquidation of MCF Group be extended; and secondly, pursuant to s 477(2B) of the Act approving the entry by the Liquidator into retainers with his solicitors, Pinsent Masons, and a funding agreement.

2    Michael Coleman, who claims to be a creditor of MCF Group, was granted leave pursuant to r 2.13 of the Federal Court (Corporations) Rules 2000 (Cth) to appear as an interested person at the hearing of the Amended OP limited to making submissions in relation to the order sought by the Liquidator pursuant to s 588FF(3)(b) of the Act. He opposes the making of that order.

Background

3    MCF Group was registered on 24 May 2002. Between 24 May 2002 and 31 January 2018 Mr Coleman was its sole director and secretary and since 31 January 2018 Scott Selby has been its sole director and secretary. Mr Coleman is and always has been its sole shareholder.

4    The Liquidator understands, based on the information made available to him, that MCF Group may have been involved in the welding and/or civil works industry prior to its liquidation.

The liquidation of MCF Group

5    On 20 April 2021, on the application of Neville Barnes, orders were made by the Supreme Court of New South Wales winding up MCF Group and appointing the Liquidator as its liquidator.

6    According to the Liquidator, the relation back day for MCF Group is 4 March 2021, being the date the application before the Supreme Court was commenced. It follows that the statutory limitation period for an application for orders pursuant to s 588FF(1) of the Act expired on 4 March 2024: see s 588FF(3)(a) of the Act. The originating process seeking an extension of time was filed prior to that date on 1 March 2024.

Early steps taken by the Liquidator

7    On the date of his appointment the Liquidator sent notices pursuant to s 530B of the Act requiring the delivery up of books and records of MCF Group to:

(1)    Mr Coleman;

(2)    John F Campo and Associates, who lodged tax returns on behalf of MCF Group;

(3)    Grant E Spedding, a former solicitor for MCF Group;

(4)    Peter Anjos at Biles Anjos Lawyers, former solicitors for MCF Group; and

(5)    I K Accounting, Taxation and Consulting Services.

8    The Liquidator notes that, while he received some documentation in answer to those notices, there remains a lot of information which he would ordinarily have expected to exist for an operating company but which has not been provided to him. This includes management reports, employee records and other financial information.

9    The Liquidator says that his inquiries of Mr Coleman have not resulted in him being provided with significant additional information:

(1)    on or about 21 April 2021 the Liquidator conducted searches of the personal property security register (PPSR) which showed that on 20 November 2019 Mr Coleman had registered a security interest against MCF Group. The Liquidator requested that Mr Coleman provide information about that security interest; and

(2)    by letter dated 5 May 2021 the Liquidator requested Mr Coleman complete a report on company activities and property (ROCAP) for MCF Group. On or about 18 May 2021 Mr Coleman provided a ROCAP which the Liquidator says provides little information about the operational assets of MCF Group prior to its liquidation.

Report to creditors

10    On 22 June 2021 the Liquidator issued a report to creditors pursuant to s 70-40 of the Insolvency Practice Rules (Corporations) 2016 (Cth). In that report the Liquidator reported that:

(1)    his enquiries had identified transactions which warrant further investigations, namely transactions with related parties;

(2)    his investigations had been delayed and hampered due to the lack of cooperation by MCF Group’s current and former officers;

(3)    as at the date of the report there had been no receipts or payments in the liquidation;

(4)    he had not received MCF Group’s books and records and was unable to form an opinion on their adequacy; and

(5)    he formed the opinion that MCF Group traded whilst insolvent from at least the 2019 financial year.

11    Prior to issuing the creditors’ report, the Liquidator took steps to investigate MCF Group’s affairs including:

(1)    discussions with MCF Group’s former officer/director;

(2)    liaising with and seeking information from MCF Group’s former accountant and lawyer;

(3)    seeking books and records of MCF Group;

(4)    liaising with MCF Group’s bankers and with government agencies;

(5)    commencing initial investigations;

(6)    recovering limited records from MCF Group’s former accountant; and

(7)    conducting PPSR searches to identify any potential security interests registered against, and assets of, MCF Group.

Transfers of real property by MCF Group

12    The Liquidator’s investigations revealed that in about August 2019 an application for change of name of registered proprietor was lodged with the Registrar General in relation to the following three properties situated in New South Wales bearing folio identifiers:

(1)    2/1096382;

(2)    40/SP73910; and

(3)    1/931474,

together, NSW Properties.

13    In each case the change in name of registered proprietor was from MCF Group to Colemans (Australia) Pty Ltd and the basis of the change was said to be pursuant to s 12(4) of the Trustee Act 1925 (NSW) in reliance on a “Deed of Retirement and Appointment of Trustee BK4755 No 803”.

MCF Group’s creditors

14    In the creditors’ report the Liquidator refers to trade creditors and entities which had made claims against MCF Group in a total amount of $444,380. The Liquidator identified 10 trade creditors and other entities as follows:

(1)    CGA (Aust) Pty Limited (in liquidation);

(2)    Colemans High Security Fencing;

(3)    Martin Coleman;

(4)    Mayo Marine Pty Ltd;

(5)    MC 21 Trust-Colemans (Australia);

(6)    MC 21 Trust Colemans (Australia);

(7)    New Hampton;

(8)    Michael Coleman;

(9)    Neville Barnes; and

(10)    Fleetcon Pty Ltd.

15    According to the Liquidator, of those creditors only two, Mr Barnes, the plaintiff on the application to wind up MCF Group, and Fleetcon, are not related to MCF Group. The balance are, or at least appear to be, involved with Mr Coleman. None of those apparently related party creditors have lodged a proof of debt. As the Liquidator has been unfunded to date, he has not conducted investigations into the relationships between MCF Group and each of the apparently related party creditors or considered the validity of any debt owing to them.

Proceedings in Ireland

16    On 24 July 2023 the Liquidator received an email from Thomas Walsh, a solicitor, which attached a number of documents including an Equity Civil Bill filed on 26 June 2023 in proceeding No 231/23 in an Irish court (the actual court is not identified by the Liquidator) between Fleetcon as plaintiff and MCF Group and Coleman (Australia) Pty Ltd as defendants (Ireland Proceeding).

17    The Liquidator notes that paragraph 5 of the document he describes as the “Indorsement of Claim” in the Equity Civil Bill states that on:

6 August 2019, MCF [the Company] purported to transfer their interests in Folio 4143L County Galway (Ireland Property) to the Second-Named Defendant by way of deed of transfer. This was a conveyance of property made with the intention of defrauding the plaintiff and by which the plaintiff is prejudiced, and which the conveyance is void and/or voidable by the plaintiff.

18    The Liquidator explains that in the Ireland Proceeding Fleetcon claims, among others, orders that the transfer of the property comprised in Folio 4143L in County Galway (Ireland Property) to Mr Coleman was void and that it be set aside and that there be an enquiry into, and accounting of, all amounts owed to Fleetcon by MCF Group.

19    Prior to his receipt of the email from Mr Walsh, the Liquidator was not aware of the existence of the Ireland Property or that it had been owned and or transferred by MCF Group. That property was not referred to in Mr Coleman’s ROCAP, was not otherwise mentioned to the Liquidator and the Liquidator does not know whether the change in proprietor of the Ireland Property occurred based on a change in trustee, as was the case with the NSW Properties.

20    The Liquidator has been provided with a copy of the land registry record for the Ireland Property from which it appears that the property was transferred by MCF Group to Coleman (Australia) Pty Limited on 6 August 2019 which, as the Liquidator observes, is within two years of the relation-back day for MCF Group.

21    Based on company searches undertaken by or on behalf of the Liquidator, he has ascertained that:

(1)    there is no company registered in Australia by the name of “Coleman (Australia) Pty Ltd”;

(2)    the company “Coleman (Aust.) Pty. Ltd.” was deregistered on 8 December 1992;

(3)    there is a company which was registered in Australia on 10 July 2009 called Colemans (Australia) Pty Ltd; and

(4)    there is no company registered in Ireland by the name of “Coleman (Australia) Pty Ltd”.

22    The Liquidator does not know if a clerical error was made at the time of registration of the transfer of the Ireland Property and whether the true registered proprietor is intended to be Colemans (Australia) Pty Ltd (rather than Coleman (Australia) Pty Ltd). He intends to investigate this matter further if the Court makes the order he seeks pursuant to s 588FF(3)(b) of the Act.

23    On 5 October 2023 the Liquidator received an update from Mr Walsh in relation to the Ireland Proceeding in which he was informed that:

… proceedings initiated by [Fleetcon] to date have been successful in that we have frozen the relevant asset of the defendants, being the property as outlined in the proceedings. Counsel has been instructed to draft the Motion to enter final judgment in respect of the property in the name of the defendant.

24    A copy of a valuation of the Ireland Property was enclosed with the communication received from Mr Walsh. It provided that the value of the Ireland Property was “in the region of €495,000”.

25    On 12 December 2023 the Liquidator received an email from Mr Barnes informing him that Mr Coleman had “decided to put up a defence” in relation to the Ireland Property. I infer from that email that Mr Coleman is intending to defend the Ireland Proceeding.

Further investigations

26    In the event that the order sought by the Liquidator extending time under s 588FF(3)(b) of the Act is made the Liquidator intends to take the followings steps and undertake the following further investigations:

(1)    investigate the potential realisation of the Ireland Property;

(2)    investigate the availability of other voidable transaction claims;

(3)    apply to conduct public examinations of Messrs Selby and/or Coleman pursuant to s 596A and s 596B of the Act;

(4)    obtain legal advice in relation to potential uncommercial transaction claims, unreasonable director related claims and shadow director claims against Messrs Selby and Coleman;

(5)    investigate the NSW Properties; and

(6)    seek legal advice on the effect of MCF Group’s liquidation within the jurisdiction of Ireland, on cross-border issues that may arise in relation to any proceeds from the sale of the Ireland Property and in relation to whether any voidable transaction proceedings would be stayed or otherwise impacted by the Ireland Proceeding.

27    If following his further investigations there are voidable transaction claims available to MCF Group, the Liquidator intends to seek legal advice and, subject to that advice, commence proceedings for relief pursuant to s 588FF of the Act and other ancillary provisions of the Act for the benefit of MCF Group.

28    At this stage the Liquidator has not been able to identify or investigate any claims or their viability, including whether any creditors are trust creditors and/or the benefit of any right of indemnity held by MCF Group as former trustee. However, he is now in a position to conduct investigations because of the proposed funding described below.

29    The Liquidator considers that the proposed investigations may lead to recoveries for the benefit of creditors of MCF Group. In particular based on the Ireland Property’s value and noting Fleetcon has asserted that it is owed AUD $140,000 (although it has not yet lodged a proof of debt in the liquidation) there would be approximately AUD $820,000 available to creditors, save for potentially the costs incurred in the Ireland Proceeding and assuming Fleetcon would be entitled to payment of its claim in full and in priority to other creditors (a matter about which the Liquidator intends to seek legal advice).

30    In short, the Liquidator’s application for an extension of time is to permit him time to further investigate and, with the benefit of those investigations, decide whether to bring a proceeding against any person in respect of which MCF Group may have a claim. At this early stage the Liquidator has identified that there may be the following potential claims:

(1)    uncommercial transaction claim against Messrs Selby and/or Coleman and/or Colemans (Australia) Pty Ltd in relation to the Ireland Property;

(2)    unreasonable director related transaction claim against Messrs Selby and/or Coleman in relation to the Ireland Property; and

(3)    breach of director duties claim against Messrs Selby and/or Coleman (including as a de facto director in relation to the latter).

31    As the liquidation of MCF Group has been unfunded to date the Liquidator has not received any substantive advice on the prospects of any of the claims referred to above and would need to undertake the proposed further investigations prior to seeking any such advice.

Delay

32    Since his appointment, the Liquidator has attempted, with only limited success, to contact Mr Selby, Mr Coleman and other entities to seek information about the affairs of MCF Group and to obtain copies of MCF Group’s books and records. In addition, on 26 May 2021 the Liquidator sought assistance from the Australian Securities and Investments Commission in relation to the lack of cooperation on the part of Mr Selby.

33    The Liquidator is of the view that this lack of cooperation, together with the limited books and records available to him, has hindered his further investigations into the affairs of MCF Group. Added to that the liquidation has been unfunded thus far. To that end MCF Group has no assets, other than a security interest registered against CGA (Aust) Pty Ltd (in liquidation), nor any significant cash at bank. The Liquidator has not recovered any assets or made any recoveries in the liquidation to date.

34    In his report to creditors the Liquidator requested that creditors contact him if they wished to consider funding his further investigations. No creditor has done so.

35    Given the lack of information and lack of funding the Liquidator was not able to progress his investigations into any voidable transaction claims available to MCF Group.

The Liquidator obtains funding

36    In 2023 after the Liquidator became aware of the Ireland Proceeding and the Ireland Property he sought preliminary advice from his solicitors and, in November 2023, following receipt of advice, he sought funding from Clover Risk Funding Pty Ltd to fund public examinations and any subsequent legal proceedings.

37    On 20 February 2024 Clover Risk Funding agreed to provide funding for the public examinations and potential subsequent litigation. On 22 February 2024 it also agreed to fund an application for an extension of time under s 588FF(3) of the Act.

38    On 11 July 2024 the Liquidator and MCF Group entered into a funding agreement with Clover Risk Funding as trustee for the CRF001 Trust (Funding Agreement).

39    A copy of the Funding Agreement was in evidence before me. It is not necessary to set out its terms which are subject to an order made pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) (FCA Act).

40    The Liquidator is of the view that it was and is in the best interests of MCF Group and its creditors to enter into the Funding Agreement for the following reasons:

(1)    there have been no offers from creditors to assist with or provide funding. Clover Risk Funding is the only funding option identified;

(2)    he has identified the following prospective claims in the liquidation for the benefit of creditors the prospects of which he intends to investigate through the conduct of public examinations:

(a)    debt claim against Mr Coleman for payments made by MCF Group to him totalling $45,797.40;

(b)    prospective insolvent trading claim and breach of director duties claims against Messrs Selby and Coleman (including as a de facto and/or shadow director), value to be determined;

(c)    uncommercial and/or unreasonable director related transaction claim in respect of the transfer of the NSW Properties from MCF Group to Colemans (Australia) Pty Ltd; and

(d)    uncommercial and/or unreasonable director related transaction claim in respect of the transfer of the Ireland Property from MCF Group to Coleman (Australia) Pty Ltd;

(3)    the claims referred to in the preceding subparagraph have not been investigated due to the lack of funding to date. Entry into the Funding Agreement enables the Liquidator to undertake necessary investigations and seek legal advice; and

(4)    if claims relating to the Ireland Property are successful, based on the valuation of that property, the Liquidator considers that there may be available assets of potentially around $960,350 and further amounts may become available from any recovery associated with the NSW Properties for the benefit of creditors. Due to a lack of funding, he has not yet been able to undertake valuations of the NSW Properties. However, he has sighted copies of current title searches which confirm that there are no mortgages or caveats registered on the title of those properties, such that he anticipates that if claims relating to the NSW Properties are successful this would also result in further recoveries for the benefit of creditors. The Liquidator is not prepared to incur costs, including legal expenses, in investigating or advancing those claims without funding.

41    Based on his experience with litigation funding, the Liquidator considers that the terms of the Funding Agreement are reasonable and in line with the expected commercial return and priority regime for a litigation funder. This is particularly so given the commercial risk for the funder if there are limited, or no recoveries made following further investigations.

Solicitor’s retainers

42    On 27 February 2024 Senatore Pty Ltd, a company of which the Liquidator is a director, entered into a costs agreement with Pinsent Masons (Solicitor’s Retainer). On 2 August 2024 Pinsent Masons provided the Liquidator with an updated retainer.

43    The Liquidator is of the view that both the Solicitor’s Retainer and the updated retainer (together Retainers) appear to be reasonable, contain terms and hourly rates consistent with retainers he has seen and entered into as a liquidator and that it was in the best interests of MCF Group and its creditors to enter into them. The Liquidator notes that legal advice and assistance will be required to explore the potential for further investigations into voidable transactions including through public examinations and, given the Funding Agreement, it is necessary to seek ongoing legal assistance.

44    In the circumstances of this case, including where there is no committee of inspection for the liquidation of MCF Group and the Liquidator has not called a creditors’ meeting to propose a resolution to approve entry into the Retainers or the Funding Agreement, the Liquidator considered it expedient and appropriate to seek approval to enter into those agreements from the Court.

45    Relatedly, given that there appear to be eight related party creditors out of a total of 10 known creditors, some of whom have a connection to Mr Coleman who is intended to be one of the primary subjects of public examination and further investigation, the Liquidator considered there was a risk that those creditors may not vote in favour of entry into the Funding Agreement or the Retainers. In that event the Liquidator would have, in any event, had to bring an application to seek approval from the Court as he remains of the view that entry into the Funding Agreement and the Retainers is in the best interest of MCF Group and its creditors.

Mr Coleman’s evidence

46    As set out above, Mr Coleman opposes the Liquidators’ application for orders under s 588FF(3) of the Act. He relies on two affidavits which were read without objection, and which contain both evidence and submissions. I set out a summary of those affidavits to the extent they contain relevant evidence not already recounted above.

47    Mr Coleman is the sole shareholder of MCF Group. He deposes that:

(1)    on 27 January 2000 the MC21 Trust was established and that the original trustee of the Trust was MC21 Pty Ltd;

(2)    on 24 May 2002 MCF Group was incorporated to replace MC21 Pty Ltd as trustee of the Trust; and

(3)    on 10 July 2009 Colemans (Australia) Pty Ltd was incorporated. It has never traded and since 31 January 2018 has acted as trustee of the Trust, replacing MCF Group as trustee on that date.

48    In the period 1 July 2002 to 31 January 2018 MCF Group did not trade. It was then trustee of the Trust. After ceasing as trustee of the Trust, in the “fiscal” year 2020, it commenced trading. Mr Coleman says that MCF Group did not lodge any tax returns from 2003 to 2018 because it did not trade.

49    On or about 20 February 2020 John F Campo and Associates submitted two nil tax returns for MCF Group for the financial years ending 30 June 2018 and 30 June 2019. Mr Coleman also reports the following matters:

(1)    under the guidance of his accountant, Imran Khan, MCF Group was registered for GST and commenced operations in the wedding and accommodation services sector;

(2)    those activities came to a halt soon after because of the imposition of COVID-19 restrictions;

(3)    the sole source of revenue for MCF Group from the commencement of its business activities was a monthly retainer fee of $31,366.36 from Colemans Group Aust Pty Ltd for the provision of services by Mr Coleman. However, the retainer fee was only paid on two occasions in July and August 2019;

(4)    compensation and superannuation contributions by MCF Group were for Mr Coleman and Alyson Coleman who were on its payroll from 1 August 2019 to 30 June 2020; and

(5)    the financial liabilities and commitments of MCF Group were satisfied through loans or via services procured from affiliated entities. Transactions for services received by MCF Group were financed by funds transferred from the Trust or those service providers were otherwise classified as MCF Group creditors.

50    Mr Coleman says that in May and June 2021 he and John Campo responded to correspondence from the Liquidator and provided him with copies of documents.

51    As to the Ireland Proceeding, Mr Coleman says that the Liquidator’s reliance on that proceeding as part of his application under s 588FF(3) of the Act ignores the change in trustee from MCF Group to “Colemans Australia”. He also says that any claim in relation to CGA (Aust) Pty Ltd (in liquidation) is not relevant to the liquidation of MCF Group.

52    Mr Coleman says that it is important for the Liquidator to conclude the liquidation within three years and that the Liquidator’s conduct has caused Mr Coleman to incur “exorbitant legal and accounting expenses” of more than $75,000 which he describes as “vastly disproportionate to the liquidation value”. Mr Coleman says that this reflects a “misuse” by the Liquidator of his position and legal process. Mr Coleman also notes that there has been an absence of creditor meetings or communications further exemplifying the “lack of proper processes in the conduct of the liquidation” and that this has been particularly “burdensome” to him as he is overseas establishing an export/import business.

Application under s 588FF(3)(b) of the Act

53    As set out above, the plaintiffs seek an order that the time in which an application under s 588FF(1) of the Act is to be brought in respect of or in relation to the liquidation of MCF Group be extended. Initially, they sought an extension to 4 March 2025. However, given the passage of time since the filing of their Amended OP, they seek an extension of 12 months from the date of the making of any orders. Mr Coleman opposes the making of such an order.

Mr Coleman’s submissions

54    Mr Coleman provided written submissions of some 28 pages, notwithstanding an Order was made on 23 April 2024 that submissions be limited to 10 pages in length, and made oral submissions at the hearing of the application. While intending no disrespect and noting that Mr Coleman is not legally qualified, his written submissions are somewhat argumentative, repetitious and at times difficult to follow. Putting those observations to one side, in summary Mr Coleman submits that:

(1)    the application is without merit as “voidable transactions do not exist in the liquidation of MCF Group let [alone] against” him or Colemans (Australia) Pty Ltd for the reasons set out in Mr Coleman’s affidavit;

(2)    any delay in the liquidation of MCF Group is entirely the Liquidator’s fault. He has had three years to conclude the liquidation but has “wasted time” because of a lack of funding. He argues that the Liquidator should have concluded the liquidation but instead seeks to inflict further undue stress and prejudice on Mr Coleman for his own potential financial gain, not for the benefit of the single creditor, Mr Barnes;

(3)    an extension of time will cause prejudice to Mr Coleman by prolonging unresolved matters that should have concluded and causing him to incur costs. He contends that he has incurred costs exceeding $110,000 in defending this application;

(4)    since 31 January 2018, MCF Group has been “its own company” and was no longer trustee of the Trust. The Liquidator has had three years to review any trading activities and the last six months to review any voidable dealings with third parties and has chosen not to do so. MCF Group was solely operating as a company during this period, without any trustee functions;

(5)    the current trustee of the Trust and the Trust have no connection to the MCF Group liquidation which the Liquidator should acknowledge and accept. Lack of funding is not a valid basis to have failed to investigate as the Liquidator has no right to investigate the Trust;

(6)    the Ireland Proceeding is not relevant to the liquidation of MCF Group and the Liquidator will not have access to any proceeds from a successful outcome in that proceeding;

(7)    the Court would not grant the extension sought because the Liquidator has had three years to carry out his investigations but his efforts to undertake them have been “disastrous” and “lazy”, Mr Coleman has had to incur expense in opposing the application which he describes as “unfounded” and there will be nothing recovered for the benefit of the one creditor;

(8)    the Liquidator chose not to pursue and complete his work because of a lack of financial incentive to do so and lack of knowledge of the economic reality. He is solely responsible for his current position and for the unfair and prejudicial situation this has created for Mr Coleman. There is no legitimate basis for an extension of time; and

(9)    an extension of time to undertake liquidator’s examinations of either Colemans Australia Pty Ltd or Mr Coleman cannot be justified when all relevant information for the past three years has already been provided to the Liquidator and he has failed in all his obligations to meet timeframes because he knew the economic outcome in June 2021.

Statutory framework and legal principles

55    Section 588FF(3) of the Act relevantly provides that an application for relief under s 588FF(1) may only be made within the period beginning on the relation back day and ending three years after the relation back day or 12 months after the first appointment of a liquidator in relation to the winding up of the company, whichever is the later, or within such longer period as the Court orders on an application made by the liquidator during the first mentioned period.

56    In Marsden (in his capacity as liquidator of Pentridge Village Pty Ltd (in liq) (rec and mgr apptd) controller apptd)) v CVS Lane PV Pty Ltd [2018] FCA 102; 124 ACSR 100 at [54]-[55] Gleeson J set out the principles which govern the exercise of the discretion to extend time under s 588FF(3)(b) of the Act. Her Honour said at [54]-[55]:

54    The Court is required to consider what is fair and just in all the circumstances: BP Australia Ltd v Brown [2003] NSWCA 216; (2013) 58 NSWLR 322 (BP Australia) at [187]. The applicant for the extension must satisfy the Court that it should be granted: BP Australia at [183].

55    The matters that ordinarily inform the exercise of the Court’s discretion are:

(1)    the liquidator’s explanation for the delay in taking action within the three year period provided for by the statute;

(2)    the merits of the foreshadowed proceeding, assessed by a “preliminary review”; and

(3)    any likely prejudice that would be suffered if the extension of time is granted: Parker, Re Worldwide Specialty Property Services Pty Ltd (in liq) v Worldwide Specialty Property Services Pty Ltd (in liq) [2017] FCA 687 at [15]-[16]; Walker and Moloney v CBA Corporate Services (NSW) Pty Limited [2012] FCA 328 (“Walker”) at [43].

57    As to delay, in Parker, in the matter of Worldwide Specialty Property Services Pty Limited (in liq) v Worldwide Specialty Property Services Pty Limited (in liq) [2017] FCA 687 Lee J said at [19]:

The question of delay and its relevance to assessing what is fair and just in all the circumstances in the context of an application under s 588FF(3)(b) was canvassed, in some detail, by Ward J (as her Honour then was) in Re Clarecastle Pty Ltd (in liq) [2011] NSWSC 857; (2011) 255 FLR 435 at [129] to [142]. Her Honour collected a number of cases and statements about delay in a variety of contexts from which the following principles emerge:

(a)    in assessing what is fair and just in all the circumstances, in the context of an extension application under s 588FF(3)(b), regard must be had to first, the public policy underlying the imposition of limitation periods generally; and secondly, in relation to s 588FF(3)(b) in particular;

(b)    as to limitations generally, four broad rationales for the enactment of limitation periods can be identified: first, as time goes by, relevant evidence is likely to be lost; secondly, it is oppressive to a defendant to allow an action to be brought long after the circumstances which gave rise to it have passed; thirdly, people should be able to arrange their affairs and utilise their resources on the basis that claims can no longer be made against them; fourthly, it is in the public interest requires that disputes be settled as quickly as possible;

(c)    as to the particular context of s 588FF(3)(b):

(i)    a broader public interest is served by allowing persons who have had dealings with companies which become insolvent to conduct their commercial affairs with a degree of certainty about their exposure to having past transactions unravelled and, to quote Spigelman CJ in BP Australia v Brown [2003] NSWCA 216; (2003) 58 NSWLR 322 at [113] to [114]:

… (c)ommercial life must at some stage rule off the past and focus energy on the future…… the commercial and economic life of the community is sometimes better served by allowing the loss to lie where it falls, so that all concerned may proceed with a high degree of certainty as to their financial position. The passage of time, even the passage of three years, can be seen to legitimately alter the balance of conflicting interests in this regard.

(ii)    where conflicting interests have to be balanced, the eventual loss of the ability to make a relevant claim for a voidable transaction may be less important in favour of providing certainty to others who have had dealings with the company, including other creditors, so that they can proceed with their business affairs with an assurance that they are no longer at risk;

(iii)    importantly (in a passage in which Mr Cook SC, who appeared for those Interested Parties known as the Chesterfield Parties, placed particular emphasis), in Arthur Andersen Corporate Finance Pty Limited v Buzzle Operations (In Liq) (2009) NSWCA 104 (at ([93]), Ipp JA expressed the view, that the deliberate decision to allow a writ to become stale after a limitation period had expired would be a powerful factor against extending time for service, noting that any prejudice suffered in such circumstances would be “self-inflicted”. Consistently with this notion, a seemingly deliberate decision on the part of a liquidator not to pursue, in a timely fashion, the investigations for which an extension is sought, is a decision of a similar kind, such that any prejudice occasioned might also be said to be self-inflicted: see Ward J in Clarecastle at [141].

58    As to the merits, in Marsden Gleeson J said at [60]-[61]:

60    Concerning merits, what is required is “an investigation as to whether such proceedings would be so devoid of prospects that it would be unfair, by granting an extension, to expose the other party to the continuing prospect of suit”: Walker at [44] citing Green v Chiswell Furniture Pty Ltd (in liq) [1999] NSWSC 608 at [15]. However, a review of the merits may be unnecessary if the purpose of the application for an extension of time is to allow the liquidator time in which to properly decide whether or not to bring the proposed proceedings: Walker at [44].

61    In Taylor v Woden Constructions Pty Ltd [1998] FCA 1228, Finn J said:

Where the liquidator is not in a position to consider the merits but has proper grounds for inquiring into the matter because of suspicion it invites (or that is cast on it) or of the explanation it requires, then provided he can satisfactorily explain his delay in inquiring sufficiently into the matter, he should not be closed out from an extension because he is unable to say he has a meritorious claim. In some instances…it will be sufficient if he can say “I do not know if I do, but there is reason to inquire”.

59    As to prejudice, in BP Australia Ltd v Brown (2003) 58 NSWLR 322 Spigelman CJ (with whom Mason P and Handley JA agreed) observed (at [192]-[193]) that the question of prejudice was an important matter and the absence of prejudice was a relevant matter to be taken into account in the exercise of the discretion.

60    In this case the Liquidator seeks a “shelf order” which is an order permitting proceedings to be commenced within the period as extended by the Court in relation to any transaction. The language of s 588FF(3) of the Act permits the making of such an order: see Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (2015) 254 CLR 489.

Consideration

61    In this case the order sought for an extension of time under s 588FF(3) of the Act should be made. My reasons for coming to that conclusion, having regard to the factors relevant to the exercise of the discretion under s 588FF(3) of the Act, follow.

62    First, I turn to the question of delay.

63    In this case the Liquidator did not make a deliberate decision to delay his investigations. The evidence shows that he has attempted to pursue enquiries into MCF Group, including by making enquiries of both its former and current director, but that, for the most part, those enquiries have not borne fruit. At best, the Liquidator has only received limited information. As explained by the Liquidator, the reasons why he has been unable to progress his investigations are because:

(1)    only very limited information has been provided by the current and former director;

(2)    there is an absence of the provision of the sort of information that would usually be expected to assist a liquidator in investigations;

(3)    there has been a lack of funding, including an absence of realised assets and no funding offered by creditors, despite requests and the fact that until recently, the liquidator did not know about the Ireland Property and the potential for recoverability out of that asset for the benefit of creditors.

64    Relatedly, as soon as the Liquidator became aware of the Ireland Property, he sought both funding and advice and then filed the present application.

65    As submitted by the plaintiffs and contrary to Mr Coleman’s submissions, these facts, when considered together, do not suggest that the Liquidator has deliberately chosen not to, or neglected, to act in a timely and appropriate manner in pursuing claims. The Liquidator has not been sitting on his hands, as Mr Coleman suggests. He has, in the past three years, attempted to obtain information about MCF Group and pursue investigations but has been hampered in his efforts to do so.

66    The second matter to consider is the merits of any foreshadowed proceedings.

67    That said, here the purpose of the extension sought is to permit the Liquidator time in which to undertake investigations so as to identify any causes of action, consider their merits and, armed with that information, decide whether to bring proceedings. Based on the evidence before me it is apparent that the Liquidator has not yet been able to undertake those steps because of a combination of a lack of cooperation and a lack of funding leading, in turn, to a lack of information. The Liquidator has identified certain potential defendants, namely the former and current director of MCF Group and entities associated with its former director. However, he is, for the same reasons, not in a position to provide any detail in relation to any proposed claim which would permit its merits to be assessed.

68    Given the purpose for which the extension is sought, the limited information presently available and the nascent stage of any investigations, it is unnecessary to conduct a review of the merits of any foreshadowed proceeding. Mr Coleman contends that there are no claims warranting investigation and no available voidable transaction claims. That is a mere assertion, not supported by any evidence and contrary to the Liquidator’s considered view. The Liquidator’s clear position is that there is sufficient for him to form the view that he has “reason to inquire” whether there may be meritorious claims that can be brought for the benefit of MCF Group’s creditors.

69    The final question is that of prejudice.

70    The plaintiffs accept that an extension of time if granted will cause prejudice insofar as potential defendants will remain, for longer than the prescribed statutory timeframe, subject to the possibility of the commencement of proceedings. However, as the plaintiffs also observe, insofar as potential prospective claims have been identified they are against related entities of MCF Group, including its current and former director.

71    In Vaughan v Catanzariti, in the matter of Italian Prestige Jewellery Pty Limited (In Liq) [2018] FCA 1403 at [41] I accepted a submission that where the claims that are the subject of a liquidator’s proposed investigations were against related entities, the possibility of actual prejudice diminishes. I said at [41]:

…The persons most likely to be affected by the claims were in charge of the Companies, or closely related to those who were in charge, at the time of the alleged transactions. One would ordinarily expect them to have knowledge or access to knowledge of the operation of the Companies at the time of the alleged transactions. If an explanation is available for those transactions they are well placed to provide it. Further, since March 2017 the directors of the Companies have been on notice of the possibility of claims being made, at least in relation to insolvent trading.

72    Mr Coleman, who is the only person who opposes the application under s 588FF(3)(b) of the Act, is a former director of MCF Group. He is also one of the identified subjects of the Liquidator’s proposed investigations and potential proceedings. As a person related to MCF Group, he is in the same position as the persons identified at [41] of Italian Prestige. Namely he is likely to have knowledge of the operation of MCF Group at the time of any alleged transactions and able to provide an explanation, if available.

73    Mr Coleman says he has already incurred costs in the liquidation which has caused him prejudice and allowing an extension of time will cause him to incur further costs and, I infer, ongoing prejudice. There is no evidence relied on by Mr Coleman to support his contention that he has incurred $110,000 in costs in connection with the liquidation. Putting that to one side, I accept that Mr Coleman may incur costs if the order sought is made, particularly in circumstances where he is likely to be the subject of examination. While that may cause him to suffer some prejudice, that is outweighed by the evidence before me which suggests that permitting the Liquidator further time to undertake investigations is likely to be of benefit to the creditors of MCF Group.

74    Further, as the plaintiffs submit, Mr Coleman, a putative examinee, is a related party who is likely to have some knowledge of the circumstances in which certain transactions took place. He has not suggested that any evidence that would have been available to him, or any entity controlled by him, has been lost or destroyed or, other than further costs that might be incurred, that he will be in a worse position because of the proposed extension of time causing any prejudice. In any event, in the first instance the Liquidator intends to conduct examinations and inquiries with a view to assessing whether to bring proceedings. It may be that no proceeding affecting Mr Coleman or any related entity ultimately transpires. That is a position which, once the extension is granted, will be crystallised in the near future.

75    Finally, the extension of time is sought for a period of 12 months from the proposed date of the orders. Thus, to the extent that any person suffers prejudice by reason of the further time allowed to the Liquidator, it will be for a finite and relatively short period.

76    Having regard to the above, in my view the risk of any prejudice is minimal and is outweighed by the interests of creditors in receiving a possible recovery from the potential claims and the public interest in ensuring that the affairs of an insolvent entity are able to be investigated in line with the overarching purpose of the Act in preserving and promoting the interests of creditors: see Brown v DML Resources Pty Ltd (in liquidation) (2001) 52 NSWLR 685 at [36].

Application under s 477(2B) of the Act

77    The plaintiffs also seek an order pursuant to s 477(2B) of the Act approving entry into the Funding Agreement and the Retainers. In support of their application for these Orders, as well as relying on the facts set out under the heading “Background” above, the plaintiffs relied on a further affidavit sworn by the Liquidator in relation to the entry into and terms of the Funding Agreement and the Retainers and provided to the Court copies of the Funding Agreement and the Retainers. Much of that evidence as well as the Funding Agreement and the Retainers are subject to orders made pursuant to s 37AF of the FCA Act.

78    It is not necessary to set out that evidence or the terms of the agreements in any detail. It is sufficient to say that the Liquidator has reviewed the Funding Agreement and the Retainers, is satisfied with their terms and is of the view that it was and is in the best interests of the creditors that he and MCF Group enter into the Funding Agreement and that he enter into the Retainers.

79    There is no committee of inspection for the liquidation of MCF Group and the Liquidator did not call a meeting of creditors to obtain their approval for entry into the Funding Agreement or the Retainers. Hence this application.

80    No person, including Mr Coleman, appeared to oppose the Liquidator’s application pursuant to s 477(2B) of the Act.

Statutory framework and legal principles

81    Section 477(2B) of the Act provides that a liquidator must not enter into an agreement on the company’s behalf without the Court’s approval or the approval of a committee of inspection or of a resolution of the creditors, if the term of the agreement may end or the obligations of a party to the agreement may, according to its terms, be discharged by performance more than three months after the agreement is entered into, even if the term may end, or the obligations may be discharged within those three months.

82    The relevant principles are settled.

83    In In the matter of 77738930144 Pty Limited (in liq) (formerly Commercial Indemnity Pty Ltd) [2017] NSWSC 452 Gleeson JA (sitting at first instance) relevantly said at [53]-[54]:

53    The object of the approval process under s 477(2B) is to ensure that contractual provisions as to timing do not cut across the general expectation that the winding up will proceed in an expeditious fashion as circumstances allow: Re HIH Insurance Ltd [2004] NSWSC 5 at [15] (Barrett J); Re HIH Overseas Holdings Ltd (in prov liq) [2001] NSWSC 426 at [5] (Barrett J).

54    The following propositions can be derived from the authorities, when deciding whether to grant approval under s 477(2B):

(1)    the controlling consideration is the interests of creditors concerned in the winding up;

(2)    the court pays regard to the commercial judgment of the liquidator;

(3)    although the court is not a rubber stamp for whatever the liquidator puts forward, it is not the role of the court to independently appraise the commercial desirability and commercial terms of the transaction,

(4)    the court will generally not interfere unless there can be seen to be some lack of good faith, some error in law or principle, or some real and substantial ground for doubting the prudence of the liquidator’s proposal.

See Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85–6; State Bank (NSW) v Turner Corporation Ltd (1994) 14 ACSR 480 at 483; Re HIH Insurance Ltd [2004] NSWSC 5 at [15] and Re G A Listing & Maintenance Pty Ltd (1994) 15 ACSR 308 at 311.

84    In Hurst, in the matter of Liquor National Pty Ltd (in liq) [2019] FCA 1581 Gleeson J summarised the principles, in the context of an application for approval to enter into a funding agreement, at [15]-[19]:

15    Section 477(2B) of the Act qualifies the general power of liquidators under s 477(2)(m) to “do all such things as are necessary for the winding up the affairs of the company and distributing its property”.

16    The standard imposed under s 477(2B) concerns an assessment by the Court that entry into the agreement is a proper exercise of power and not ill-advised or improper on the part of the liquidator, rather than involving the exercise of commercial judgment: Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 257 (Cassegrain) at [11] per Black J citing McGrath and Another (in their capacity as liquidators of HIH Insurance Limited and Others) [2010] NSWSC 404; (2010) 266 ALR 642 at [13].

17    In Pascoe; Re Matrix Group Ltd (in liq) [2011] FCA 1117 at [7], Jacobson J cited with approval the following statement by Austin J of the relevant test in Leigh; Re AP and PJ King Pty Ltd (in liq) [2006] NSWSC 315 at [23]:

Although the court has the statutory task [under s 477(2B)] of giving “approval” to a liquidator’s agreement that may end more than three months after it is entered into, the case law shows that the court undertakes something less than a complete “merits review”. As Giles J said in Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85-6:

… the court is necessarily confined in attempting to second guess the liquidator in the exercise of his powers, and generally will not interfere unless there can be seen to be some lack of good faith, some error of law or principle, or real and substantial grounds for doubting the prudence of the liquidator’s conduct.

18    The Court’s task is to satisfy itself, having regard to the liquidator’s commercial judgment, that there is no error of law, grounds for suspecting bad faith or any other good reason to intervene: Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 29 ACSR 109 at 118; Stewart, Re Newtronics Pty Ltd [2007] FCA 1375.

19    In Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89; (2011) 85 ACSR 38 at [24], the Full Court endorsed the following comprehensive list of factors relevant to the Court’s assessment of a proposed litigation funding agreement:

(1)    the liquidator’s prospects of success in the litigation;

(2)    the nature and complexity of the cause of action;

(3)    the extent to which the liquidator has canvassed other funding options;

(4)    the level of the funder’s premium;

(5)    the liquidator’s consultation with creditors; and

(6)    the risk involved in the claim (including the amount of costs likely to be incurred in the proposed litigation, the extent to which the funder is to contribute to those costs, and the extent to which the funder is to contribute to the defendant’s costs if the action is not successful, or towards any order for security for costs).

85    In relation to costs agreements, in Kitay v Frigger (No 2) [2024] WASC 113 at [80]-[88] Hill J considered a number of authorities which, in turn, had considered whether approval under s 477(2B) of the Act was required where a liquidator was entering into a solicitor’s costs agreement. Her Honour said at [89]-[91]:

89    In each of these decisions (apart from the decision of Colvin J), the court proceeded on the assumption made by the moving party that approval under s 477(2B) of the Act was required. Where necessary, the court reviewed the substance of the relevant costs agreement to consider whether the agreement was entered into by the liquidator personally in discharging their responsibilities or as an agent of the company, whether the company was a party to the agreement or appeared to have the status of a party under the agreement, and who received the benefit of the services provided under the agreement. Where the company appeared to have the status of a party to the agreement and received the benefit of the agreement, the courts (without expressing a final conclusion as to whether approval was required under s 477(2B) of the Act) went on to consider whether approval should be granted.

90    In my view, the approach that has been taken in these decisions is consistent with the purpose and context of s 477(2B) of the Act. As has been held by the courts previously, the purpose of this section is not limited to a consideration of who has direct financial liability for any contractual obligations. It also concerns whether the contract assists with the winding up or proper realisation of the company’s assets. This approach is also consistent with the broader context of the Act, which draws a distinction between actions which can be taken by a liquidator or external administrator in their own right (such as applications for examinations under s 596A and s 596B of the Act, or in respect of voidable transactions under s 588FF of the Act), and those which must be brought in the name of the company (such as claims for breaches of directors’ duties, or an application under s 601AG of the Act).

91    On this basis, I consider that approval under s 477(2B) of the Act is required for agreements entered into by the liquidator as agent for or representative of the company, as well as agreements in the name of the company. However, approval is not required for entry into agreements by the liquidator in their own name. In determining whether the agreement has been entered into by the liquidator as agent for or representative of the company or in their own name, it is necessary to consider the substance of the agreement, whether the company is a party to the agreement or appears to have the status of a party under the agreement, and who receives the benefit of the services provided under the agreement.

(Footnotes omitted).

Consideration

86    As the plaintiffs submit, the Funding Agreement is squarely within the realm of proper realisation of the assets of MCF Group and/or assisting with its winding up and entry into the Funding Agreement is clearly within the proper exercise of the Liquidator’s power. The Liquidator gives evidence both as to the benefit to creditors of entering into the Funding Agreement and as to his consideration of its terms. As to the latter, the Liquidator considers the terms to be reasonable and appropriate.

87    Having regard to those matters it is appropriate to grant the relief sought by the Liquidator pursuant to s 477(2B) of the Act in relation to entry into the Funding Agreement.

88    As to the Retainers, while the provision of legal services for the examinations and advice in the liquidation might be considered as services provided to the Liquidator, as opposed to the Liquidator as agent for MCF Group, I accept the Liquidator’s submission that I could not conclude that any services or advice provided pursuant to the Retainers would only affect the Liquidator as opposed to, at least potentially, being of some benefit to MCF Group as represented by the Liquidator. Further, the terms of the Funding Agreement make provision for further steps to be taken, subject to agreement, should certain matters eventuate, such that the scope of the Retainers might be varied or amended to include legal work which would plainly be for the benefit of MCF Group.

89    In those circumstances, on balance, I am satisfied that the appropriate course is to make an order under s 477(2B) of the Act for entry into the Retainers to the extent necessary.

Conclusion

90    It follows from the above that I will make the orders sought by the plaintiffs in their Amended OP pursuant to s 588FF(3)(b) of the Act extending the time in which an application under s 588FF(1) of the Act in respect of or in relation to the liquidation of MCF Group can be made to the day ending 12 months after the date of the making of the order and pursuant to s 477(2B) of the Act approving entry into the Funding Agreement and, to the extent necessary, the Retainers.

91    The costs of the proceeding shall be costs in the liquidation of MCF Group.

92    I will make orders accordingly.

Associate:

Dated:    26 September 2024